in the Dow and S&P 500 including increases in oil, banks and utilities gave confidence to investors Monday. The indexes close up 1.7% and 1.4% respectively.Such has not been the case over the past two weeks as rising bond yields and bad bets on low volatility caused investors to dump equities, oil and gold. Speaking of volatility, the blue chip index changed direction 53 times last week including 29 times in a single session. Monday gave some investors hope that turbulence was – at least partly – in the rearview mirror.Related: HOW TO HANDLE MARKET MAYHEM
A Note Of Caution
It wasn’t exactly unbridled enthusiasm, however. Some analysts and investors noted that the Bureau of Labor Statistics could bring the party to a halt Wednesday with the release of new data on consumer prices. A faster-than-expected rise in inflation could cause the Federal Reserve to bump interest rates putting pressure on bonds and stocks.Wednesday’s consumer-price data could indicate whether the January wage growth figure was part of a broader trend, according to Matthew Forester, chief investment officer at BNY Mellon’s Lockwood Advisors. “How long it takes for things to calm down again is anybody’s guess,” Forester said.
By The Numbers
Although Wednesday’s news
could impact Monday’s gains, investors were not unhappy to see Monday’s rebound. All in all, the Dow Jones industrial average rose 409.47 points to 24,600.37, the S&P 500 gained 36.39 points closing at 2,655.94 and the Nasdaq composite rose 107.47 points or 1.56% to 6,981.96.Ahead of Wall Street, some Asian markets showed positive numbers Monday as well. The Shanghai Composite Index rose 0.3% to 3,140.59 and Hong Kong's Hang Seng added 0.5% to 29,661.79. Seoul's Kospi added 0.8% to 2,382.14 while Sydney's S&P-ASX 200 dropped 0.3% to 5,819.30. Meanwhile, Japanese markets were closed and markets in Taiwan, Singapore and Indonesia gained while New Zealand and the Philippines retreated.Related: WHEN THE DOLLAR FALLS
The Bond Factor
The X factor
in all this is the bond market. After all the culprit in last week’s selling spree was a rapid rise in bond yields that frightened investors already addicted to a decade of low interest rates. U.S. government debt is considered extremely safe. Investors compare the “risk-free” earnings from Treasury bonds to stocks and other assets. The surge in the 10-year yield from 2.4% to a current rate of 2.8%, means the cost of money has increased.It also means the stock market isn’t such a bargain especially given the risk. Although interest rates are still historically low, they are climbing. How much and how fast will matter soon. Faster economic grow and the potential for higher inflation are among the factors driving this economic train. Basically, higher wages are good for workers but cause Wall Street to fear those wages will hit corporate profits. If, as noted above, Federal Reserve decides to cool off the economy with aggressive rate hikes, things could get much worse.